On Sep 30, we downgraded
Standard Motor Products Inc.
) to Neutral. The downgrade was based on the company's high
dependence on some customers and price competition prevailing in
the market. Both the top and bottom lines increased year over
year in the second quarter of 2013, but they missed the Zacks
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STANDARD MOTOR (SMP): Free Stock Analysis
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Why the Downgrade?
On Aug 7, 2013, Standard Motor reported an 18.6% rise in adjusted
earnings per share to 70 cents in the second quarter of 2013 from
59 cents in the year-ago quarter. However, earnings per share
missed the Zacks Consensus Estimate of 76 cents.
Total revenue increased 0.5% to $270.1 million, missing the Zacks
Consensus Estimate of $283 million. Revenues from Temperature
Control segment declined marginally while the Engine Management
segment reported an improved performance.
Following the release of the second quarter results, the Zacks
Consensus Estimate for 2013 decreased 5.6% to $2.20 per share.
The Zacks Consensus Estimate for 2014 dropped 1.6% to $2.51 per
share. Currently, Standard Motor retains a Zacks Rank #4 (Sell).
We are concerned about the adverse effects of price competition
prevailing in the market. This price competition is a result of
imports from China and the price-cut strategy adopted by
competitors. This leads to lower selling price; thus adversely
affecting the profit margin of Standard Motor.
Moreover, sales of Standard Motor are mostly concentrated on its
major customers like
O'Reilly Automotive Inc.
), NAPA Auto Parts and
Advance Auto Parts Inc.
). The company's sales to these customers accounted for about
19%, 18% and 15%, respectively, of total sales in 2012. The top 5
customers of the company represented about 64% of consolidated
net sales in 2012. Thus, the loss of any key customer could
significantly affect the company's results.
Meanwhile, Standard Motor enjoys a strong competitive advantage
due to its brand recognition and sizeable customer base. It
distributes parts through established brand names and also under
In addition, Standard Motor is not significantly exposed to the
cyclical nature of the automotive industry since it is focused on
the aftermarket, where it is a leading player. Demand for repair
products are expected to rise owing to the increasing number of
vehicle models with different features on road, improved
complexity in modern vehicles, expansion in the used vehicles
market and an increase in the average auto age in the U.S.
Other Stocks to Consider
Motorcar Parts of America Inc.
) with a Zacks Rank #1 (Strong Buy) is performing well in the
auto truck industry where Standard Motor operates.